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Bonds: From high yield to below yield

Negative yields on sub-investment grade bonds is a worrying development.


It is hard to think of a more bizarre consequence of quantitative easing (QE) than negative yielding high-yield bonds.

Indeed, it seems that the capital markets have entered their own Bizarro World, the comic book realm where everything is the opposite of what it should be.

Zero or negative yielding high-quality bonds have been a feature of the bond market for years.

Worldwide, $7 trillion of government bonds yield negative interest rates. In late June, the surreal prospect of the two-year debt of Italy – a country with a debt-to-GDP ratio of 132% and rising – turning negative became a reality.

Some €4.4 trillion, or half, of European government bonds offer a negative yield, as does 20% of European investment-grade debt outstanding.

But for high-yield issuers such as Altice, the French cable conglomerate with $50 billion of debt outstanding, to be offering negative yields on bonds issued by holding company Altice Luxembourg SA just defies all logic.

Investors are flooding the rest of the bond markets with liquidity and squeezing out any yield as a consequence

In May, the issuer had to pay 10.5%